PetroChina first-half net beats forecasts; gas deal inked

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HONG KONG (MarketWatch) -- PetroChina Co.
PTR, +1.73%
China's largest listed oil and gas producer by capacity, Thursday reported a surprise 1.4% growth in its first-half net profit from a year earlier, as a turnaround in its refineries helped offset a decline in earnings from upstream operations.

Chairman Jiang Jiemin disclosed that the company recently signed a production sharing contract for a natural gas field in Turkmenistan, to further increase its natural gas reserves amid China's robust demand for the cleaner fuel.

Jiang also said he expects the company's natural gas reserve replacement ratio to exceed 300% over the next 2-3 years, and that of crude oil to exceed 100%, as it is reviving output from aging domestic fields and will keep searching for upstream reserves overseas.

The company's net profit for the six months ended June totaled CNY81.83 billion, up from CNY80.68 billion a year earlier and above the average forecast of CNY73.69 billion from six analysts polled by Dow Jones Newswires.

Revenue rose to CNY392.73 billion from CNY326.55 billion.

PetroChina's average selling price for crude oil in the first half fell 1.86% to US$57.66 a barrel from a year earlier, the company said. Its combined oil and gas output in the first half rose only 3.7% to 552.7 million barrels of oil equivalent.

The operating profit of its exploration and production division in the period fell 23% to CNY96.44 billion from CNY124.45 billion.

The lifting cost, or the cost of pumping oil from the ground, rose 20.1% to US$7.10 a barrel, from US$5.91 a barrel in the same period of 2006. Its lifting cost was US$6.74 a barrel at the end of last year.

PetroChina is using more advanced drilling technology in some major aging domestic fields and pumped more difficult wells to raise output, which pushed up production costs. Rises in the cost of raw materials such as steel and the tight supply of oil services also increased operating costs, analysts say.

Jiang said the company plans to book reserves from its oil and natural gas find in the Nanpu block of northern China's Bohai Bay by the end of this year.

China's Ministry of Land and Resources certified the total proven reserves at Nanpu on Aug. 14 at 445 million metric tons, with economically recoverable reserves at 86.6 million tons, which is equivalent to 632 million barrels.

"The reserve level of the field will increase in the future," said Jiang.

New Turkmenistan Gas Deal

Jiang told a press conference in Hong Kong he expects the Turkmenistan gas field to produce 13 billion cubic meters of natural gas per year. He declined to say how much PetroChina is paying for the contract.

Turkmenistan plans to sell another 17 billion cubic meters of natural gas a year to China for a period of 30 years, Jiang said.

He said PetroChina plans to build a pipeline from Turkmenistan to China to transport the natural gas. The planned pipeline will likely pass through Uzbekistan, Kazakhstan, Erdos, Urumqi, Lanzhou, Xian, Shanghai and Guangzhou.

He declined to say how much investment is required by the project.

Strong 1H Performance By Refineries; 2H Uncertain

PetroChina, China's second-largest refiner by capacity after China Petroleum & Chemical Corp., said its refineries swung to an operating profit of CNY3.93 billion from an operating loss of CNY13.89 billion a year earlier, on lower crude oil costs.

The company didn't forecast the performance of its refineries in the second half. But bigger rival Sinopec Corp. said earlier its refineries had posted operating losses again since July, as government-capped domestic fuel prices couldn't compensate for soaring oil costs.

Earlier this year, the Chinese government proposed a more market-oriented approach to oil product pricing based on crude costs, refining costs and profit margins. Some analysts said a policy shift will eventually take place but is unlikely any time soon, as it could exacerbate China's already ballooning inflation.

PetroChina's chemical and marketing division posted an operating profit of CNY5.40 billion, up from CNY2.91 billion.

PetroChina is keeping its 2007 capital expenditure budget at CNY185.70 billion, up from CNY148.75 billion in 2006.

It proposed a first-half dividend of CNY0.2057, up from CNY0.2028 a year earlier.

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